Australia’s largest brick and tile maker is banking on a new wave of first home buyers settling on the outskirts of Sydney and Perth.
Brickworks reported a 54 per fall in first half profit on Thursday amid plant closures and restructuring, but the company says it is optimistic about the medium-term outlook after a difficult first half.
Managing director Lindsay Partridge expects a normal housing cycle to emerge as first home buyers move out of expensive rental properties and buy new homes on the city outskirts.
“Interest rates are low and in a lot of cases you can buy a new house and get a reasonable deposit for less than you can rent,” Mr Partridge told AAP. “It doesn’t matter whether you can afford to rent or not if you can’t find one.
“That forces people to look at buying a place because it’s the only accommodation you can get.”
Brickworks says the building cycle is close to the bottom as tight rental vacancy markets turn renters into home buyers.
“The two markets that will be the best, going forward, are Sydney and Perth,” Mr Partridge said.
NSW hadn’t had a housing upturn in seven years as rental prices increased and that the story was similar in WA.
Victoria had come off a five-year housing boom and it would take time to work through excess stock.
“I wouldn’t be surprised if we had a downturn there,” he said.
Meanwhile, the industry is expecting an upturn in Queensland.
Brickworks shares were almost 0.5 per cent lower at $10.50 on Thursday after net profit in the first half was $54.1 million, down 53.8 per cent from $117.1 in the prior corresponding period.
Brickworks said its Building Products Group had been hit hard with the convergence of extremely challenging market conditions and significant restructuring activities.
However, capital investments over the past five years had placed most of its businesses in a strong competitive position for the medium to long term, the company said.
Plant closures and restructuring activities across the group resulted in a significant increase in per unit manufacturing costs, Brickworks said.
The profit fall at Brickworks affected its major shareholder Washington H Soul Pattinson, which posted a first half profit of $99 million on Thursday.
That was down significantly from the same period in the previous year, in which it gained a $195 million benefit from the sale of Arrow Energy shares by its 65 per cent-owned coal miner New Hope.
Washington H is an investment firm that controls New Hope and has major interests in Brickworks, TPG Telecom and Australian Pharmaceutical Industries.
First half net profit was 1.8 per cent to $88.7 million, with the lower profit contribution from Brickworks offset by higher contributions from TPG and New Hope.
Washington H increased its interim dividend by two cents to 17 cents, fully franked.
